5 To 1 Says They're Overpaid (Part I)

Swiss Army Brand Turnaround Benefitted Both Employees and Shareholders, Not Top Management

Swiss Army knives are a pretty good product and you may have noticed the brand has shown up on some other nice things in recent years. Swiss Army brand watches, luggage and fragrances are on the market now too and keeping to the quality, value and style of the knives they have done well.

The parent company, Victorinox, is headquartered in Switzerland, one of the more expensive places in the world in which to do business. In this age of outsourcing and the pressure to lower costs, expensive Switzerland’s economy is still doing very well. Unemployment is only 3.65% and the currency is stronger than either the US dollar or the Euro.

The Financial Times wrote last week that after 911, Victorinox faced a 30% drop in sales of its’ Swiss Army knives due to new strict airport security measures.  Since airport security was going to remain strict, the company decided that this was probably a permanent loss of sales and scaled back its' operations and began to develop and invest in new products.

Victorinox has a commitment to its' workforce as well as its' stockholders. During the adjustment period, the company went to great pains to protect the whole workforce and didn't, like many American companies, reward management for firing workers and outsourcing. Cutting costs like extras across the firm and lending unneeded people out to other firms temporarily minimized the job cuts. The payroll policy also came into play. The company has a rule of limiting its' top paid employees to a ratio of 5 to 1 to the wages of the lowest paid employees, a policy that helped control payroll costs at the time.

The expansion into watches, luggage and fragrances was a success and the new products now make up 60% of sales, a track record which makes Victorinox’s turnaround notable. Despite scoring a small triumph, the company’s management team hasn’t been given bonuses worthy of a czar and instead can enjoy a rate of pay five times that of the bottom of the company’s pay scale as well as the job security, esteem and respect such good work merits. Victorinox’s shareholders and employees have also been rewarded and the company’s future seems to have been only enhanced as the quality and value and reach of the Swiss Army image has only benefitted.

By the way, Swiss Army knives are not made in China. They are still made in Switzerland.

Investment Conclusion: Question management teams whose strategy to add value is to outsource jobs without a realistic strategic plan that will make the company succeed in the long run and are paid huge salaries and bonus packages to do so. Hint: There are lots of them out there right now.